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Energy XXI (EXXI): What to Expect This Earnings Season?

Zacks Equity Research

Domestic oil and gas explorer Energy XXI Ltd. EXXI is expected to release second-quarter fiscal 2016 results on Monday, Feb 8.   

In the last reported quarter, the company posted a negative earnings surprise of 20.59%. In fact, Energy XXI failed to meet estimates in all of the trailing four quarters, with an average negative surprise of 108.38%.

Let’s see how things are shaping up for this announcement.

Factors to Consider This Past Quarter

Most of the time during the October–December quarter of 2015, West Texas Intermediate (WTI) crude traded significantly below the $50-per-barrel level. In fact, during December, the commodity traded below $40 per barrel. Overall, the pricing environment is not favorable for upstream operations. Being part of the oil and gas exploration and production industry, Energy XXI’s revenues, earnings and cash flows are expected to be hampered by low commodity prices.

During the prior-quarter result announcement, the company declared production of 54,500 barrels of oil equivalent per day (BOE/D) for second-quarter of fiscal year 2016 – the output figure was as of Nov 9, 2015. This was lower than the prior-quarter production of 58,900 BOE/D. To some extent the underperformance was owing to downtime at West Delta 73, an oil and gas field. Hence we can say that with pricing remaining weak, lower production volumes can significantly hurt earnings.  

However, over the past 60 days, the to-be reported quarter’s estimate has improved. Currently, the second-quarter estimate is pegged at a loss of $1.15, which is narrower than the loss of $1.20 projected 60 days ago.

Earnings Whispers

Our proven model does not conclusively show that Energy XXI is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. Both the Most Accurate estimate and the Zacks Consensus Estimate for Energy XXI are pegged at a loss of $1.15.

Zacks Rank: Energy XXI carries a Zacks Rank #3 that increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

Note that stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While an estimate beat looks uncertain for Energy XXI, here are some firms you may want to consider on the basis of our model, which have the right combination of elements to post a beat this quarter:

Enbridge Energy Partners, L.P. EEP has an Earnings ESP of +5.56% and a Zacks Rank #3. The partnership is anticipated to release fourth-quarter 2015 results on Feb 17.

Transocean Ltd. RIG has an Earnings ESP of +20.27% and a Zacks Rank #2. The company is anticipated to release fourth-quarter 2015 results on Feb 24.

Summit Midstream Partners, L.P. SMLP has an Earnings ESP of +33.33% and a Zacks Rank #2. The partnership is expected to release fourth-quarter 2015 results on Feb 25.

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ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
 
ENERGY XXI LTD (EXXI): Free Stock Analysis Report
 
TRANSOCEAN LTD (RIG): Free Stock Analysis Report
 
SUMMIT MIDSTRM (SMLP): Free Stock Analysis Report
 
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